With food prices still high, producers’ inflation based on Wholesale Price Index (WPI) surged to 3.4 per cent in June as against 2.6 per cent in May. This is in line with the retail inflation, based on the Consumer Price Index (CPI), which rose to 5.08 per cent in June as against 4.7 per cent of May.
With the rise in inflation headline, the timeline for reduction in policy interest rate is likely to be pushed down further.
“Positive rate of inflation in June, 2024, is primarily due to increase in prices of food articles, manufacture of food products, crude petroleum & natural gas, mineral oils, other manufacturing etc,” the Commerce and Industry Ministry said in a statement. The annual rate of inflation (y-o-y) based on the WPI Food Index increased to 8.68 per cent in June from 7.4 per cent in May.
Commenting on the latest number, Aditi Nayar, Chief Economist with ICRA, said the rise in June’s headline was broad-based. Also, this is the third consecutive month of a sizeable sequential step up (+0.3 per cent in March, +1.2 per cent in April and +2.6 per cent in May). “Looking ahead, the headline WPI inflation is expected to dip to 2 per cent in July, driven by a favourable base, as well as some cooling in global commodity prices,” she said.
According toShreya Sodhani, Regional Economist, Barclays. both wholesale and retail price indices are overwhelmingly being driven by food. CPI inflation crossing the 5 per cent mark in June was largely due to elevated food inflation. While industrial costs are rising, the impact of this is not yet fully reflected in core CPI inflation (core CPI inflation rose marginally to 3.1 per cent in June from 3 per cent in May). “The central bank is likely to remain hawkish over persistently elevated food inflation. While we expect a window for monetary easing to open in December 2024, we note a risk of rate cuts being pushed to 2025 if growth remains on a strong footing or if the inflation surge is stronger than expected by the bank,” she said.
Sujan Hajra, Chief Economist with Anand Rathi Shares and Stock Brokers, felt that the food inflation, as seen in CPI too, is a major driver, with vegetable prices rising significantly. “The other side to it is that we are also seeing manufacturing prices inching up and that will be a strain on corporate margins as we highlighted in our note previously. Going ahead, we see better rainfalls and sowing levels bring inflation numbers lower, while the CRB index too coming down a notch will also remain a positive,” he said.